Employers Reinsurance Corp. v. Landmark

• Decision Date: 25 April 1996
• Docket Number: No. 950291,950291
• Citation: 547 N.W.2d 527
• Court: North Dakota Supreme Court
• Parties: EMPLOYERS REINSURANCE CORPORATION, Plaintiff, Appellant and Cross-Appellee, v. Edean LANDMARK, Defendant, Bert Holvik, Holvik Halvorson Insurance, Inc. a North Dakota Corporation, Defendants, Appellees and Cross-Appellants, Bert Holvik & Associates, a defunct Sole Proprietorship, Defendant. Civ.

Page 527

547 N.W.2d 527

EMPLOYERS REINSURANCE CORPORATION, Plaintiff, Appellant and Cross-Appellee, v. Edean LANDMARK, Defendant Bert Holvik, Holvik Halvorson Insurance, Inc. a North Dakota Corporation, Defendants, Appellees and Cross-Appellants Bert Holvik & Associates, a defunct Sole Proprietorship, Defendant.

Civ. No. 950291.

Supreme Court of North Dakota.

April 25, 1996.

Rehearing Denied May 29, 1996.

E.T. Conmy, III (argued), of Nilles, Hansen & Davies, Ltd., Fargo, for plaintiff and appellant Employers Reinsurance Corporation.

H. Malcolm Pippin (argued), of Nilles, Hansen & Davies, Ltd., Fargo, for cross-appellee Employers Reinsurance Corporation.

Wickham Corwin (argued), of Conmy, Feste, Bossart, Hubbard & Corwin, Ltd., Fargo, for defendant, appellee and cross-appellant Holvik Halvorson Insurance.

Leland F. Hagen (argued), of Lee Hagen Law Office, Ltd., Fargo, for defendant, appellee and cross-appellant Bert Holvik.

NEUMANN, Justice.

Employers Reinsurance Corporation (ERC) appeals from a declaratory judgment holding ERC has a duty to indemnify and defend Holvik Halvorson Insurance, Inc. (HHII) in a South Dakota lawsuit brought by Edean Landmark and that ERC is liable for HHII's reasonable costs and attorney fees incurred for this declaratory judgment action. Bert Holvik cross-appeals from the judgment holding ERC has no duty to indemnify or defend him in his personal capacity against Landmark's lawsuit. HHII also cross-appeals from the judgment, asserting ERC is liable for HHII's costs and attorney fees on this appeal. We affirm, but remand for determination of HHII's reasonable costs and attorney fees incurred in this appeal.

Holvik is a Fargo insurance agent with a lengthy career in insurance sales. ERC became Holvik's errors and omissions insurance carrier on April 16, 1984, when Holvik owned a sole proprietorship known as Bert Holvik & Associates. During 1985, Holvik's principal insurance client and largest premium risk was Aerial Contractors, a business mainly owned by Jim Nesheim. Nesheim, who was Holvik's good friend, also was part owner of Chisioux, Inc., a general contractor for government construction projects. In April 1985, Nesheim asked Holvik to obtain South Dakota workers compensation insurance for Chisioux. St. Paul Fire & Marine Insurance Company (St. Paul) was the South Dakota assigned risk workers compensation carrier and the company also had a policy in force for Aerial Contractors.

On April 2, 1985, Holvik wrote to St. Paul requesting that Chisioux and three other Nesheim-owned companies be added to Aerial Contractors' South Dakota workers compensation insurance policy. On May 15, 1985, St. Paul sent Holvik a form to be completed before Chisioux could be added to the policy. For unknown reasons, Holvik never returned the form to St. Paul and Chisioux was not added as an insured on Aerial Contractors' South Dakota policy.

On October 22, 1985, Landmark, a Chisioux employee, fell from a ladder and was injured while working on a South Dakota project. Chisioux promptly notified Holvik of Landmark's claim and sent Holvik copies of bills relating to the claim and a doctor's preliminary report of injury. At first, Landmark's injury did not appear serious. Landmark was treated by a chiropractor whose preliminary report indicated Landmark could return to work in seven to ten days from his first visit. He estimated $800 would be the cost of Landmark's medical treatment.

After the Landmark claim was reported, Holvik discovered Chisioux had never been added to the South Dakota workers compensation policy and there was no coverage for Landmark's injury. Holvik, out of personal pride, did not tell Aerial Contractors, his largest client, that he had made an error in failing to procure South Dakota workers compensation coverage for Chisioux. Holvik also thought Landmark's claim would not reach the $2,500 deductible on his ERC errors and omissions policy. Holvik decided to personally pay Landmark's medical bills, and in 1985, he paid $427.

In late 1985, Holvik and David Halvorson, another insurance agent, decided to go into business together. They formed a corporation, HHII, which began business on January 1, 1986. At that time Holvik and Halvorson each owned one-half of the shares of the corporation. Both have been the only shareholders of the corporation, have held the position of president at various times during its existence, and have been officers and employees of the corporation since its inception. Halvorson is currently president and owns two-thirds of the stock. Holvik owns the other one-third. ERC, which had been Holvik's insurer, became HHII's errors and omissions insurance carrier on April 16, 1986, and has, through annual renewals, continued to provide that insurance for the corporation ever since. Holvik signed the application in 1986 as corporate president and also signed the renewals for 1987 and 1988. Halvorson signed the renewal applications for the corporation from 1989 through 1992. During this time, Holvik never told Halvorson that he was paying Landmark's medical bills.

Other than the initial $427, Holvik paid no further medical expenses for Landmark before April 16, 1986. Holvik knew there might be future chiropractic bills, but he continued to think Landmark's injury was a minor one. By the end of 1986, however, Holvik had paid from his personal funds between $15,000 and $20,000 directly to, or on behalf of, Landmark on his claim. From 1986 until 1992, Holvik personally made more than $50,000 in additional payments for medical expenses and wage loss benefits on Landmark's behalf.

By April 1992, Holvik was contemplating retirement. Because he was still paying Landmark, Holvik realized something had to be done about the matter. On April 9, 1992, Holvik told Landmark for the first time that he had been personally paying for his workers compensation claim through the years and that the payments were not being made by the insurance company as Holvik had led him to believe. On the same day, Holvik notified ERC about Landmark's claim. He later notified Chisioux that he had failed to obtain South Dakota workers compensation coverage for it in 1985. However, Holvik did not tell anyone at HHII about the existence of the Landmark claim until June 1992, when Halvorson confronted Holvik after receiving a letter about the claim from ERC.

In June 1992, Landmark filed an action in South Dakota against Holvik, Halvorson, HHII, Aerial Contractors, Chisioux, and its owner, seeking, among other things, workers compensation benefits, damages for fraud, and exemplary damages. The defendants tendered the defense over to ERC, the errors and omissions insurer. ERC then brought this declaratory judgment action under N.D.C.C. Chapter 32-23 to determine whether any of its policies issued to Holvik or HHII provided either liability coverage or a duty to defend Holvik and HHII.

Following a trial, the court held ERC had no obligation to indemnify or defend Holvik or his defunct sole proprietorship for claims made against them in Landmark's lawsuit or to reimburse Holvik for payments he made to, or on behalf of, Landmark for his injury. The trial court further held, however, that ERC had a duty to indemnify and defend HHII on Landmark's claims in the South Dakota lawsuit and that ERC was obligated to reimburse HHII for its reasonable costs and attorney fees incurred in the declaratory judgment action. These appeals followed.

I

Holvik asserts the trial court erred in concluding ERC had no duty to indemnify and defend him against Landmark's claims. The trial court reasoned the ERC errors and omissions policy was a "claims made" policy, and because Holvik failed to comply with the policy's notice provisions, ERC had no duty to defend Holvik in the South Dakota action, no duty to reimburse him for payments he made to Landmark, and no obligation to pay his attorney fees for the declaratory judgment action.

A

There are two major types of liability insurance: (1) an "occurrence" policy provides coverage if the event insured against takes place within the policy period, regardless of when the injured party makes a claim; and (2) a "claims made" policy provides coverage only if a claim arising from the hazard insured against is made by the injured party during the policy period, thus making the injured party's presentation of the claim the most significant factor in the triggering of coverage. See Kief Farmers Co-op. Elevator v. Farmland, 534 N.W.2d 28, 36 (N.D.1995). A variation of the "claims made" policy is a "claims made and reported" policy. While a " 'claims made' policy implicitly allows reporting of the claim to the insurer after the policy period, as long as it is within a reasonable time, ... a 'claims made and reported' policy imposes the additional condition that the insured report the claim to the insurer within the policy period, or within a specified time after learning of the claim...." 2 R. Long, The Law of Liability Insurance § 12A.05[3A], at p. 12A-68.1 (1996).

The notice provisions of the ERC policy appear in sections I, V(c) and X(b). Section I provides:

"COVERAGE. The Corporation does hereby agree to pay on behalf of the Insured such loss in excess of the applicable deductible stated and within the limit of liability specified in the Declarations sustained by the Insured by reason of liability imposed by law for damages caused by any negligent act, error or omission of the Insured or any person for whose acts the Insured is legally liable, arising out of the conduct of the business of the Insured in rendering services for others as a general insurance agent, insurance agent or insurance broker, and including activities as an insurance consultant or notary public, as respects claims first made against the Insured during the policy period."

(Emphasis added). Section V(c) defines the term "claims first made" to

"mean that the Insured has received notice of legal...